to borrow on their equipment to finance ongoing operations or expansion .
Bad debt makes you poorer and is the dependence on credit card expenditure , store card , car credit , car loans and anything that is a lavish expense such as holidays and furniture used to buy liabilities . It is important to have a strategy not to accumulate any more bad debts .
Step 1 -Stop accumulating bad debt . Whatever you purchase via credit cards must be paid off in full at the end of each month . No exceptions .
Step 2 – Make a list of all your consumer ( bad ) debts . This includes credit card , car loans , school loans , home improvement loans on your personal residence and any other bad debts you have acquired . You can even include your home mortgage in this list .
Step 3 – Next to each item listed make 3 columns :
a Amount Owed
b Minimum Monthly Payment
c Number of Months
Enter the appropriate numbers into each column . To arrive at the number of months , simply divide the amount owed by the minimum payment .
Step 4 – Based solely on the Number of Months begin ranking each debt . Put a “ 1 ” next to the lowest number of months , a “ 2 ” next to the 2nd lowest number and continue up to the highest number of months . This is the order that you will be paying off your various debts .
Step 5 – Come up with an additional R800 to R1500 per month . If you are serious about getting out of debt – and , more importantly , becoming financially free – then generating this extra money will not be difficult .
To be candid , if you cannot generate an additional R800 per month then your chances of becoming financially independent are slim .
Step 6 – Pay the minimum amount on every debt you have listed EXCEPT for the one you ’ ve marked with a “ 1 .” On this first debt to be paid off , pay the minimum amount due plus the additional R800 to R1500 . Keep doing this each month until your first debt is paid off . Scratch that first debt off your list .
Step 7 – Pay the minimum amount due on every debt you have EXCEPT for the one you ’ ve marked with a “ 2 .” On this debt , pay the minimum amount due , PLUS the entire amount you had been paying on debt # 1 . For example if on debt # 1 your minimum amount due was R400 and you added the additional R800 then you were paying a total of R1200 each month . On debt # 2 , if the minimum amount due is R500 , you will now pay R500 plus R1200 or a total of R1700 per month . After a debt is paid off then take the total amount you were paying on that debt and add it to the minimum amount due on your next debt to get your new monthly payment . You will be amazed at how quickly this amount adds up and how quickly your credit cards , car loans , etc . are paid off . Continue this process until all the bad debts on your list are paid off .
Step 8 – By this time the monthly amount you are paying on your last debt is likely to be quite substantial . Keep paying that amount every month . Except now – instead of paying it to creditors – you pay it to yourself for only one type of purchase : assets that give you positive cash flow each month . You will be out of the Rat Race faster than you ever dreamed !
www . reimag . co . za AUGUST 2016 SA Real Estate Investor 19